Which factors determine industrialization is still one of the great questions of economic development. Most empirical research on industrialization has focused on cross-country comparisons of productivity and economic growth. One limitation of these national comparisons is that they tend to overlook the diversity of economic conditions inside most countries. This dissertation research project will exploit regional differences in industrial development within Germany and the Pennsylvania- Ohio-Virginia region to analyze the role of natural resource endowments, agglomeration economies, and political barriers to migration and firm location for industrialization.
The first question being analyzed is how mechanization contributed to the geographic concentration of manufacturing industries in Germany and the Pennsylvania-Ohio-Virginia region. The introduction of powered machinery created the potential for technology spillovers and benefits to shared local labor markets for skilled technicians. Furthermore, the adoption of water and steam power introduced dependence on natural resources like rivers and coal. In fact, the adoption of water power might have hindered the formation of industry clusters, because the use of water power required location on a river with sufficient flow and space for a dam. In contrast, the adoption of steam engines might have encouraged the concentration of industries around coal mines, because coal deposits were scarce and coal was expensive to transport. Comparing the effects of mechanization on the geographic concentration of industry in Germany and the Pennsylvania-Ohio-Virginia region will help to identify which of these mechanisms shaped the industrial landscape under the different conditions.
The second research question pursued here is how the political unification of the German Empire affected industry location. It is possible that political barriers prior to 1871 served as protection for manufacturing in less developed states, in which case unification could have led to de-industrialization in these areas. But unification also added hinterland for establishments in already dense manufacturing centers and could have encouraged firms to spread out more. Furthermore, unification might have improved local conditions in less developed states and made them more attractive for manufacturing. The foundation of the German Empire coincided with the railway boom and mechanization in manufacturing, which makes it difficult to separate the impacts that these events had on the location of manufacturing. By using U.S. counties as a control group and districts in Germany as a treated group, one can examine more effectively the impact of political and economic unification.
A new data set has been collected from the manufacturing censuses of the German Zollverein and the German Empire, which documents power use and regional employment for 124 industries between 1846 and 1907. Similar data will be collected from the U.S. state manufacturing censuses between 1840 and 1910. By making these new data sets available, this project will contribute to our knowledge about industrialization in Europe and the United States. The proposed analysis is also expected to improve our understanding of the long run consequences of political and market integration. Most economists and policy makers agree that market expansion generally increases overall welfare, but what happens to local industries when independent states with different regulatory frameworks join a single union with common regulation is less clear.
This dissertation research studied the impact of technological change on regional industrial development, drawing from theories of industrial location that explain the development of cities and regions in response to economies of scale and agglomeration, access to natural resources, and transportation costs. The central argument is that the adoption of steam powered machinery in the 19th century created incentives for manufacturers to concentrate production in central areas and around coal fields. Railroad construction lowered the costs of regional trade and thereby made it feasible to serve distant markets from these central locations. To test these arguments, we created a new data set of power use and regional employment in different manufacturing industries. The data covers a period of 60 years between 1846 and 1907 and has a low level of spatial aggregation, making it possible to detect and investigate changes in the location and spatial concentration of industries. The data were combined with GIS information about the location of infrastructure, allowing us to measure regional factors for industrial development like the costs of shipping coal from mining areas to manufacturing regions. The research findings show that the transition from water to steam powered factories in combination with the large boom in railroad construction increased regional economic differences. In other words, the regional concentration of early industrialization can be explained in part by new benefits to spatial concentration and a fall in the costs of forming industrial clusters. The consequences of the railroad boom are directly relevant for today’s economies. Transportation investment is often used as a public policy tool to promote regional development. The findings of this research indicate that transportation investment can lead to de-industrialization in regions with weak industrial bases if benefits to industrial clusters pull local firms into more developed areas.
